What we can learn in exit planning from Aretha Franklin and Prince03 Jun 2019 - Simon Palmer - Practice Sales
On August 6, 2018, the “Queen of Soul” Aretha Franklin died at aged 76, after a lengthy battle with cancer. Not married, Franklin left behind four sons, aged between 48 to 63, a long-term de facto partner, an estate worth about $80 million…and no will.
We don’t know why the singer didn’t have a will. It was widely reported that Franklin’s attorneys had repeatedly urged her to create one, but she never got around to it.
Under Michigan law (where Franklin passed away), in the absence of a will, Franklin’s sons are to equally divide their mother’s assets and her partner is not entitled to inherit anything. Whether this was what Aretha would have wanted is unknown. This process of distribution could take many years because, unfortunately, (like in most cases where there is a sizable estate without a will and a blended family) the estate is likely to be contested.
While it may seem unlikely for such a high-profile celebrity to find their estate in this predicament, Aretha Franklin isn’t the only one. In 2016, another musical legend passed away with no spouse or confirmed children and no will. Prince had an unexpected death from an accidental overdose at the age of 57 and left a $200 million estate to be split between his six surviving siblings. However, as at the time of writing this article more than two years later, warring factions and claims by the IRS and the state of Minnesota have meant that his siblings have yet to receive a penny. Indeed, the legal process could tie up the estate for years to come and the attorneys for the siblings have said that “there is legitimate concern that at the end of the estate's administration there will be little, if anything, left to pass on to the heirs".
While these examples happened in the US, the circumstances could well have happened here in Australia.
Every year, Practice Sale Search has the unfortunate task of selling practices for deceased estates. As traumatised and stressed as the surviving family is at this awful time, the sale needs to be completed swiftly in order to keep the goodwill/ patient base intact and maximise the potential proceeds from the sale.
If you own a practice, spend a minute or two to think about how well documented, understandable and transparent your business affairs are, in case a family member needed to make sense of them without your help.
Here are a few things that every business owner should think about having in place for their family, in order to prepare for the worst-case scenario:
1. Make a will. A will provides written instructions for who will manage the estate, distribute the property and the assign the assets upon a person’s incapacitation or death. It is vital that a person’s will exists and is clear, in order for assets to be sold in a timely manner. Lack of clarity in this regard can lead to extremely costly (and stressful) delays in being able to sell the assets.
2. Document business arrangements
If you share a facility, equipment, staff with a partner or associate in the practice:
a. Make sure that your partner/associate also has a will. When a partner/ equity associate has passed away unexpectedly, the turmoil isn’t localised to the equity that the deceased owned. The ability of the deceased’s estate to be able to act quickly regarding decisions like hiring a locum or selling the estate’s assets is going to affect the practice as a whole.
b. Make sure that all arrangements are well documented and not just “handshake” deals or “understood” between yourself and your partner. Your family should not have to trust the word of your business partner in these matters. Documentation needs to include:
- A list of who owns what (equipment, domain names, trading names, etc.). If equipment is jointly owned, it should be listed and described as to how ownership is apportioned.
- Use of space and rooms (is it exclusive use, shared use, how is it apportioned?).
- Arrangements for any resources or expenses, like staff and rent, that may be shared (is it shared equally or are these expenses apportioned according to usage?).
c. Have a buy-out clause in any associate agreement that includes how a practice will be valued in case of emergency.
3. Write a letter of instruction
Your loved ones will be in a stressful, bereaved state. There will be avoidance behaviour when it comes to acknowledging what has happened and that decisions need to be made fast. They will search themselves for hints as to what it is that you would have wanted, and they will not know who to turn to for advice. In times like this, we have seen a short “letter of instruction” left by the deceased be invaluable. Such a letter could contain:
- Instructions that they get a locum in to work at the practice as soon as possible, even if it is only part time, and not to wait for the practice to sell before doing this. The longer the practice remains idle, the more goodwill will be lost and the lower the price will be that your practice will be able to achieve.
- A list of key individuals who will need to be contacted in order to take appropriate action. Advisors can include your accountant, your attorney, insurance agent, a practice valuer or broker who you respect, and a veterinarian friend who you trust who can help with any industry-specific knowledge that the family might need in the transition or in selecting or managing an interim locum.
- A practice broker familiar with these transactions should be able to help the family write a letter to the patient base that helps keep the practice together for sale. We have found that a well-worded letter can keep a patient base together for a considerable time and ensure that a large percentage tries the new vet when they begin.
4. Communicate your wishes
Have a conversation with your family so that they know your wishes and where to find the above documents. It is not enough to have everything documented. If your family can not find the documents, then, clearly, they are worthless.
5. Keep everything up to date
Update the above documents regularly. It is natural for some of these arrangements to change over time. It is important that you regularly look at this agreement/documentation and update it every five years or so.
Having to wait around for someone to have the authority to make decisions about the practice if you were incapacitated or deceased could be disastrous for them, both financially and emotionally. It could very well mean that the money your estate could have left to them is significantly reduced, due to compromises that have happened over that time to the patient base and due to the legal costs associated with getting that authorisation.
Many of us work far too hard in our careers to ensure that our family is financially secure. To compromise on this security in your family’s hour of need by not putting together the above documents for them is madness and, in my experience, can make their worst of times even worse.